How to break the paycheck-to-paycheck cycle

I’d like to start off by saying that the goal of this article is not to blame individuals for their economic hardships. The paycheck to paycheck cycle is a systemic issue rooted in economic inequality, which stems from the lack of access to fair and equal financial resources. I believe that it would be misleading and unfair to blame people and to keep pushing the idea that your financial struggles are your fault, and your fault only.

This being said, there are some actions and behaviours that can play a role in helping you break this cycle. There are steps that can be taken to improve your situation that, while not directly addressing the root causes of inequality, might help you reduce your stress levels and reliance on your paycheck only.

Seeking financial education and other resources can help you make smarter decisions, such as budgeting and investments. You might also want to explore other options, such as pursuing a degree or negotiating your salary.

1. Increase your income

Easier said than done, I know. But if you’re struggling to make ends meet even after budgeting and cutting off all extra costs, the only way to escape the cycle might be to increase your income.
Negotiating your current salary and rewriting your contract is a way to ask for a raise and to obtain more favourable terms and benefits. Try to research your industry’s standards and start to write down and prepare a case on why you deserve a higher wage. Be clear and confident. Joining a union can provide support and the opportunity to earn higher wages as well, if you feel you are not in the position to negotiate with your boss yourself, unions will do it in your place. As a member of a union you might be asked to pay a yearly fee to the association, but this will allow you to join a collective network of workers and to use your collective bargaining power to demand better working conditions. If nothing works, I’d say it’s time to leave for another employer.

2. Acknowledge your financial situation

Having a clear idea in mind of what your current situation is, is a crucial step in the right direction. It might be painful but it has to be done. You need to know exactly how much money you have in your bank account, how much is coming in and going out every week or every month. Income, taxes, rent, food, debt, medical expenses, leave no transaction unchecked. You might find it helpful to download a budgeting tool or to use Excel or Google Sheets to create a budgeting spreadsheet. Once you’ve laid everything down in front of you, you can start identifying the critical areas.

3. Cut back on unnecessary expenses

Assessing your financial situation might take a while, also given the fact that your expenses might fluctuate a lot during the month. Once you’ve managed to get a general picture of your status, identify the areas that can, with reason, cut back. Cutting back on expenses can mean a lot of things, from cancelling subscriptions to buying generic brands or buying produce directly from the producer instead of from the supermarket. Eating out, delivery, unnecessary purchases such as clothes and new shoes… the list goes on.

4. Create a budget

Give yourself a daily, weekly or monthly budget, and stick to it. Creating a budget that includes your shopping list, grocery shopping, bill cycle, rent, utilities, car payments etc, will help you track your income and your expenses. Try to include a budgeting category for savings, including an emergency fund as well.

5. Build an emergency fund

An emergency fund is money that is being set aside for unexpected expenses, such as a car repair or dentist bill you were not expecting. If you have the capacity and the possibility of setting money aside during the “easy” times you’ll be able to save yourself a lot of stress down the line.
Without a fund, an emergency expense might force you to go into debt and take out loans you might not be able to pay back. Aim to set aside enough to cover your expenses for three to six months.

6. Automate your savings

Automating your savings is an effective way of building an emergency fund and saving up for a long-term goal. On your bank’s app, you should be able to set up automatic transfers from your checking account to your savings account each month, you can set up weekly or monthly payments, depending on you and what you feel comfortable setting aside. This form of saving can help you budget without having to constantly think about saving money, the transfers will happen automatically.

7. Be patient

Breaking free from the p2p cycle takes time, resilience and patience. It won’t happen overnight, and it won’t happen the moment you stop paying for Netflix either. It takes commitment, as you’ll need to be consistent with budgeting and saving. There are probably going to be some setbacks throughout your journey, but keep in mind that every little step is a step in the right direction.

8. Celebrate yourself

Whether you manage to break the cycle or not, whether it takes you six months or three years, don’t forget to celebrate your successes and the people who walked with you along the way. Positive changes have to be celebrated, and finding reasons to acknowledge yourself and your achievements will help you stay motivated and focused.

Breaking the vicious cycle of financial instability is not easy. Aside from the systemic change we’ve talked about, it often requires a huge amount of effort and sacrifice. If you’re struggling to buy food for the week, saving money can be a huge challenge. Acknowledging the systemic factors and addressing them, by promoting financial education, creating economic mobility policies and supporting low income families, are necessary actions to take in order to fight income inequality. On the individual level, it requires a combination of mindset, discipline and planning. Budgeting, saving and avoiding unnecessary purchases are the first steps you can take to achieve financial stability.